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Dual Labor Market and Endogenous Fluctuations

Author

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  • Francesco De Palma

    () (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique)

  • Thomas Seegmuller

    () (EUREQUA - Equipe Universitaire de Recherche en Economie Quantitative - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

We study the influence of wage differential on the emergence of endogenous fluctuations. In this way, we introduce a dual labor market, based on the Shapiro-Stiglitz efficiency wage theory in an overlapping generations model. We show that wage inequality is a source of endogenous fluctuations. Indeed, a sufficiently strong wage differentialleads to the occurrence of cycles of period two and local indeterminacy. Moreover, in contrast to several existing contributions, these results depend neither on increasing returns to scale, nor on the degree of capital-labor substitution.

Suggested Citation

  • Francesco De Palma & Thomas Seegmuller, 2005. "Dual Labor Market and Endogenous Fluctuations," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00194165, HAL.
  • Handle: RePEc:hal:cesptp:halshs-00194165
    DOI: 10.1017/S1365100505040265
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00194165
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    References listed on IDEAS

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    1. De Palma, Francesco & Seegmuller, Thomas, 2004. "Unions, wage differential and indeterminacy," Research in Economics, Elsevier, vol. 58(3), pages 205-218, September.

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